UHS’s behavioral health division is the engine that drives the company’s profits.
Its behavioral health facilities generated roughly half of UHS’s revenue in 2013, and yet they produced 76 percent of UHS’s profit.
UHS’s behavioral health business recorded a remarkable profit margin of nearly 25 percent — meaning about one in every four dollars it received in revenue went into profits, not patient care.
How did UHS achieve those eye-popping returns?
An analysis of its financial reports in recent years shows that UHS’s high profits are tied to cuts in staffing costs. From 2005 to 2013, facilities owned by UHS for more than a year have shown a decrease from the prior year in the percentage of revenue spent on salaries, wages and benefits.
But relentlessly cutting staffing costs could be taking a toll on patient care at UHS. Research suggests that higher levels of staffing lead to better patient outcomes. And yet UHS executives have talked frankly about their focus on reducing staff expenses.
“The Bottom Line” and the PSI Merger
Some of the most revealing remarks by a UHS executive came at a 2011 investor conference. Chief Financial Officer Steve Filton explained how UHS intended to improve the financial performance of facilities formerly owned by Psychiatric Solutions Inc. (PSI), the rival it purchased for $3 billion in a blockbuster acquisition in 2010.,
Filton noted that the former PSI facilities had lower profit margins than UHS’s, and he said there was only one real way to close the “gap” in those margins.
“[T]he bottom line,” said Filton, “is when you look at the behavioral business model and you look at our financial statements, you will see that at least 50% of our expenses are salary and wages and salary-related, and probably the next biggest functional expense line is maybe 5% of expenses.”
To make up the “gap in our margins,” Filton said, “a good chunk of that has to come from a more efficient use of people, headcount, people in the right positions, etc., and frankly, that’s a big part of our focus going into it.”
From a narrow financial perspective, UHS succeeded in the goals Filton laid out. In 2009, the year before UHS’s acquisition, PSI devoted 55.7 percent of its revenues to staff compensation. By 2013, even after absorbing all of PSI’s facilities, UHS had cut spending on staff compensation to just 48.9 percent.
Looking back on the PSI merger in 2013, Filton said of the PSI facilities, “When we bought them…their operating margins were slightly below UHS’s.… I think they are now, after two years operating really at par.”
But while those facilities’ finances may now be “at par,” patient care at many of those facilities is decidedly subpar.
In fact, some of the worst scandals at UHS in recent years have taken place in former PSI facilities, including: the 2012 killing of a patient at The Vines Hospital in Florida; students being lured into prostitution in 2013 at Rock River Academy for girls in Illinois; and the alleged abuse of multiple residents at the National Deaf Academy in Florida reported on by NBC News in September 2014.
Explosive Growth, but Who’s Paying the Price?
The PSI purchase made UHS by far the largest provider of behavioral health services in the United States, and it helped drive the profits of UHS’s behavioral division to new heights.
As the chart below shows, profits at UHS’s behavioral health facilities grew from $121 million in 2003 to almost $900 million in 2013 — with a dramatic spike coming in 2011, the first full year after the PSI acquisition.
The chart also shows how UHS has been simultaneously increasing its profit margin, which has risen 20 percent over those ten years.
But who’s paying the price for that growth?
The next chart shows that both for-profit behavioral hospitals — such as those owned by UHS — and nonprofit behavioral hospitals received substantial increases in their payments from 1999 to 2009.
But while nonprofit hospitals used that new revenue to greatly increase their spending on patient care, for-profit hospitals were much stingier in their spending on patients.
And that’s concerning not just to psychiatric patients and their families, but also to taxpayers across the country, who pay for a huge percentage of care in for-profit hospitals.
In the case of UHS, the majority of its revenues — 54 percent — came from the government’s Medicare and Medicaid programs in 2013. Consequently, U.S. taxpayers have a right to know their money is being used to help patients get well, not to pad the profits of a market-dominating corporation.